Embed Size (px)
Citation preview
Available in multiple languagesAvailable in multiple languages
An Introduction to Tax Treaties Throughout Asia• Double Taxation Agreements and Your Asian Investment Strategy• Key Tax Rates Around Asia• Anti-Avoidance Rules Across Asia• Bilateral Investment Treaties
Issue 4 • July and August 2013
From Dezan Shira & Associates
2 - ASIA BRIEFING | July and August 2013
ASIA BRIEFINGIssue 4 • July and August 2013
Additional resources available on www.asiabriefing.com
Introduction
Chris Devonshire-EllisPrincipal, Dezan Shira & Associates,
Publisher, Asia Briefing
All materials and contents © 2013 Asia Briefing Ltd. No reproduction, copying or translation of materials without prior permission of the publisher.
Chet ScheltemaLegal Affairs Consultant
Hoang Thu HuyenCountry Manager
Gunjan SinhaBusiness Advisory Associate
Nathanael Susanto Business Manager
Singapore [email protected]
Asia Briefing Contributors
Regulatory Updateswww.dezshira.com
International Perspective www.asiabriefing.com
Multimediawww.asiabriefing.com/multimedia
? Asia Briefing Newswww.asiabriefing.com/news
Related Reading www.asiabriefing.com/store
This publication is also available as an interactive PDF utilizing the added features below- Get your copy from the Asia Briefing Bookstore.
ASIA BRIEFING To subscribe to Asia Briefing Magazine (six issues/year, US$119.94), please visit www.asiabriefing.com/store.
This Month’s Cover ArtAfter the rain
Oil Painting on Canvas, 80 X 80 cmPham An Hai
GREEN PALM Gallery, Hanoi, Vietnam [email protected]
http://greenpalmgallery.com+84 91 321 8496
“Tax, used properly, greases the wheels of international commerce,” as one of our clients recently put it. That’s a rather different sentiment to the old adage about death and taxes, but it is one that is becoming increasingly valid, and especially so throughout Asia. As world trade continues to grow (even in these troubled economic times, global trade grew over 2 percent in 2012), the reduction of trade barriers, tariffs, and customs duties is becoming increasingly common. Part of this is the remit of the World Trade Organization, which monitors and provides a legal platform for international commerce. However, another significant growing trend in the promotion of global trade is the creation of new trade and tax agreements.
In this issue of Asia Briefing Magazine, we take a more regional view of the subject, and look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties (BITs) - which are somewhat unfashionable, yet still the major focal point of bilateral trade between many smaller emerging nations - and also the meatier double tax treaties (DTAs) and free trade agreements (FTAs) that directly affect businesses operating in Asia. China’s own FTA with ASEAN abolishes import duties on thousands of products, and manufacturing in say Vietnam to service the China market is beginning to make a lot of sense if your product falls under the treaty remit. The DTAs that go along with this can, under the correct structure, permit employees to be based in foreign countries without tax penalty, and may even allow service offices to be established abroad without being subject to local profits taxes. Together, such trade agreements are a powerful combination.
Simply put, tax treaties are changing the nature of global logistics and the global supply chain, and are having a profound impact on Asia’s business landscape. We hope this introduction is useful and helps our readers understand and begin to make business cases for examining pertinent treaties to take advantage of what amounts to the ongoing dismantling of regional and global trade barriers.
With best wishes,
July and August 2013 | ASIA BRIEFING - 3
An Introduction to Tax Treaties Throughout Asia
Contents
“Tax, used properly, greases the wheels of international commerce”
TAXTAX
TAX
TAXTAX TAX
TAX
TAX
TAX
TAX
TAX
TAX
TAXTAXTAXTAX
TAX
TAX
TAX
TAX
TAXTAX
TAX
TAXTAX
TAXTAX
TAXTAX TAX
TAX
TAX
TAX
TAX
TAX
TAX
TAX TAX TAXTAXTAX
TAX
TAX
TAX TAXTAX
TAX
TAXTAX
TAX
TAX
TAX
TAX
TAXTAX
TAXTAX
TAX
TAXTAX
TAX
TAX
TAXTAX
TAXTAX
TAXTAX
TAXTAXTAX
TAX
TAX
TAXTAX TAX
TAX
TAX
TAX
TAX TAX
TAXTAX
TAX
TAXTAX
TAX
TAXTAX
TAX
TAX
TAX
TAXTAXTAXTAXTAX
TAX
TAX
TAX
TAXTAXTAX
TAXTAXTAXTAX
TAX
TAX
TAX TAX
TAX
TAXTAXTAXTAXTAX TAX
TAX
TAX TAXTAX
TAX
TAXTAX
TAX
XATXAT
XAT
XATXATXAT
XAT
XAT
XAT
XAT
XAT
XAT
XATXAT XATXAT
XAT
XAT
XAT
XAT
XATXAT
XAT
XATXAT
XATXAT
XATXATXAT
XAT
XAT
XAT
XAT
XAT
XAT
XATXATXAT XATXAT
XAT
XAT
XATXATXAT
XAT
XATXAT
XAT
XAT
XAT
XAT
XATXAT
XATXAT
XAT
XATXAT
XAT
XAT
XAT XAT
XATXAT
XATXAT
XAT XATXAT
XAT
XAT
XATXATXAT
XAT
XAT
XAT
XATXAT
XAT XAT
XAT
XATXAT
XAT
XATXAT
XAT
XAT
XAT
XATXAT
XATXATXAT
XAT
XAT
XAT
XATXATXATXAT
XATXATXAT
XAT
XAT
XATXAT
XAT
XAT XAT XATXAT
XATXAT
XAT
XATXATXAT
XAT
XATXAT
XAT
Related Material From Asia Briefing*
Other Asia Business Resources
www.china-briefing.com
www.aseanbriefing.com www.india-briefing.com
INDIA BRIEFINGINDIA BRIEFINGwww.vietnam-briefing.com
VIETNAM BRIEFINGVIETNAM BRIEFING
Complimentary Online Subscription* Material featured here is clickable on
the interactive PDF version of the Asia
Briefing Magazine. Get your copy at
www.asiabriefing.com/store
DTAs and Your Asia Investment Strategy
Anti-Avoidance Rules Across Asia
Asia’s Bilateral Investment Treaties
Asia Tax Treaty Update
p.4 p.8 p.10 p.11
Understanding Permanent Establishments in China
U.S.-India Bilateral Investment Treaty on the Horizon
India’s Double Taxation Avoidance Agreements
ASEAN’s Complete Collection of Tax Treaties
Vietnam and China Ink Bilateral Trade and Investment Initiatives
Timor Leste Looks to Join ASEAN
4 - ASIA BRIEFING | July and August 2013
Double Taxation Agreements and Your Asia Investment Strategy
– By Chris Devonshire-Ellis, Christian Fleming and Alex Tangkilisan, Dezan Shira & Associates
Double taxation has been dubbed “one of the most
visible obstacles to cross border investment,” leaving
room for a significant amount of money to be saved
under the almost 3,000 double taxation avoidance
agreements (DTAs or DTAAs) signed between nations
across the globe. To combat such obstacles, DTAs aim to prevent
the same income from being taxed by two or more states, while
also eliminating tax evasion and encouraging cross-border trade
efficiency.
DTAs are mostly of a bilateral nature and, while DTA-signing countries
are not all members of the Organization for Economic Cooperation
and Development (OECD), DTAs are generally based on model
conventions developed by the OECD or (less commonly) the United
Nations. And while about 75 percent of the actual words of any given
DTA are identical with the words of any other DTA, the applicability
and specific provisions of each treaty can vary substantially.
From an investor’s perspective, confusion about international
taxation can arise when investors are subject to two different and
potentially conflicting tax systems. For example, Hong Kong and
Singapore adopt a “territorial source” principle of taxation, which
means that only profits sourced locally are taxable. Meanwhile, other
countries such as China and the United States, are on the worldwide
tax system, and resident enterprises can be required to pay tax on
income sourced both inside and outside of the country. DTAs not
only provide certainty to investors regarding their potential tax
liabilities, but also act as a tool to create tax-efficient international
investments.
DTAs apply to individuals and companies of the countries or
jurisdictions who are parties to the agreement, with the aim to
prevent double taxation by allowing the tax paid in one of the two
countries to be offset against the taxes payable in the other country,
and/or by providing exemptions or reduced tax rates for specific
income types such as royalties, interest, and dividends.
Withholding Tax and Profit RepatriationDTAs also affect the repatriation of profits and earnings, as the
location of profit taking and distribution can be manipulated
favorably under the correct circumstances. This means that profits
may be permitted to be taken in a lower cost jurisdiction than would
normally be the case and distributed from there back to the overseas
headquarters. This makes complete sense when developing a
business in Asia, as capital injections and investments can then be
made from the lower tax jurisdiction.
The distribution of dividends back to the home domicile can also
be arranged in a beneficial and less tax burdensome manner than
would otherwise be possible. Many preferred holding company
jurisdictions maintain DTAs that limit or eliminate the level of
withholding taxes payable on dividends coming from subsidiary
countries and going to parent companies. For example, Hong Kong
has a DTA in place with China that lowers dividend withholding
taxes from the general rate of 10 percent down to just 5 percent
(provided certain capital holding requirements are met). What this
means for foreign businesses is that they have the option to create
a corporate structure such that profits from a China subsidiary
may be remitted to a Hong Kong holding company at a 5 percent
withholding tax rate on dividends, before then being passed on to
the overseas parent company with no additional tax obligations. In
contrast, if the China subsidiary were to remit directly to the parent
company in a country that does not hold a DTA with China, it may
be taxed at a withholding tax rate of 10 percent. Such reductions
can represent significant tax savings over a period of time, being
realized instead as additional profits.
Permanent Establishments DTAs also exist to define areas where companies may not be
considered to be generating taxable income in one or the other
country. Within these, a key area is the concept of permanent
establishment (PE) status.
There are three general types of PEs that are recognized throughout
the world: fixed place PEs, agency PEs, and service PEs. These are
typically defined as follows:
Type of PE RequisitesFixed Place PE • Fixed place of business
• Business of the foreign entity is wholly or partly carried out here
Agency PE • Authority to conclude contracts on behalf of the foreign enterprise
• Secures and delivers orders wholly or almost wholly on behalf of the foreign enterprise
Service PE • Foreign enterprise furnishes or performs services in the foreign country
• Staff works in the foreign country for a total of 6 months or 183 days during a 12-month period
July and August 2013 | ASIA BRIEFING - 5
Double Taxation Agreements and Your Asia Investment Strategy
Triggering PE status is an issue of great importance as it defines
the taxable status of particular legal structures and trade. A typical
DTA, for example, contains clauses related to the PE concept and
this can favorably impact on the total investment needed to enter
the target market. It can also impact upon the type of legal vehicle
actually required to be incorporated and, in some cases, does away
with the need for one altogether.
The concept of PE is primarily used to determine a specific state’s
right to impose tax on the business activities of foreign companies
operating in that country. Where a resident of a country carries on
business in another country with which the resident’s country has a
DTA, the profits derived will not be subject to tax in the other country
unless the business is carried on through a PE. Once an enterprise
triggers PE status in a country, that enterprise will be subject to
the host country’s relevant business taxes, and any qualifying staff
will be subject to individual income tax in the country as well. As
such, it is critical for foreign businesses operating within Asia in any
capacity to stay on top of their PE applicability and the relevant tax
rates in the region.
With further regards to PE qualifications, the OECD Model Income
Tax Treaty defines a PE as a “fixed place of business through which
the business of an enterprise is wholly or partly carried on.” However,
while most DTAs do use the OECD definition, countries are allowed
to define what constitutes a PE independently.
This can have highly beneficial results. For example, a well-structured
incorporation can carry out effective services for its parent company
- in some cases to the extent of billing local companies on their
behalf - without triggering tax exposure in the secondary country.
It depends upon how the PE issue is addressed within the specific
DTA. Singapore, for example, has favorable DTAs with many other
countries, which when properly structured at the local incorporation
level, do away with any profits tax liability altogether, even while
maintaining an office in the country. Such tax structuring and
usage of DTAs is becoming more common, and precise evaluation
of how a PE is determined under the terms of each treaty becomes
important to understand.
ConclusionIn addition to the abovementioned taxation implications, DTAs lay
out the ground rules for many other bilateral tax agreements. The
nature of these differ significantly depending upon each individual
treaty, however each should be studied in detail to ascertain both
the required legal structure and the scope of trade. International
businesses intending to trade with Asia and/or establish a physical
presence would be wise to examine the applicable treaties and seek
professional advice over the legal and financial implications prior to
contemplating the legal structure itself.
Our new ASEAN Briefing website with regular updates on ASEAN affairs, including several hundred archived downloadable copies of all ASEAN free trade agreements and member state double tax and bilateral investment Treaties with all countries and regions throughout the world, including China, India, all other Asian nations, the European Union, United States of America, Africa, Middle East, South America and Australasia.
Free Trade Agreement between
Singapore and U.S
This document was downloaded from ASEAN Briefing (www.aseanbriefing.com) and was compiled by the tax experts at Dezan Shira & Associates (www.dezshira.com).
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and
financial review services to multinationals investing in emerging Asia.
www.aseanbriefing.com/news www.aseanbriefing.com Downloadable at www.aseanbriefing.com
For more business news, foreign investment legal, tax and operational intelligence about ASEAN.
Singapore - United States Free Trade Agreement - (1994) 188 Pages. Subsequent amendments also online.
One example of the hundreds of updated ASEAN treaty documents.
Case Study: Using DTAs to Offset Profits Tax and Eliminate PE Liabilities A recent study carried out by Dezan Shira & Associates Singapore involved extensive use of the Singapore-Spain DTA for a company based in Madrid looking to set up a service office as a limited liability company in Singapore. The Spanish company’s Singapore entity was charged with operating as a regional hub for promotional activities and conducting invoicing on behalf of the Spanish entity’s significant online business. A detailed study of the DTA’s PE clauses resulted in the following conclusions concerning the use of the DTA in avoiding profits tax in Singapore:
• Consulting fees received should not be taxable in Singapore since the service activities are conducted outside Singapore at a fixed place of business in Spain. As such, the income should not be considered to be accruing in Singapore.
• The income will not be deemed to be derived in Singapore under Section 12(7) as no services pertaining to this income are being performed in Singapore. As a result, no withholding tax should be due on such payments made by the clients in Singapore.
• On this basis, the income would be considered foreign sourced income. However, there is a risk that such income could be considered remitted into Singapore if either the fees are paid into a Singapore bank or used to satisfy trade or business debts in Singapore (such as your own company subsidiary in Singapore). To alleviate this risk, the income received should not be paid or used in this manner.
This business case and use of the Spain-Singapore DTA was enough to permit the client to establish operations without the risk of incurring double taxation in Singapore, and was an integral part of the client’s expansion into Asia. Without the DTA, the business model would not have been viable.
Key Tax Rates Around Asia
MyanmarMyanmar’s Key Tax Rates
CIT† VATWithholding Tax* Individuals§
Div. Int. Roy. Min. Max.25% 0% 0% 15% 20% 1% 35%
* Withholding Tax: Rates may be reduced under DTAs† CIT: Range of 5%-40% depending on industry for foreign companies§ Individuals: 35% flat rate individual income tax for non-residents
ChinaChina’s Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.25% 3%/6%/11%/17% 10% 10% 10% 3% 45%
* Withholding Tax: Rates may be reduced under DTAs
Hong KongHong Kong’s Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.16.5% 0% 0% 0% 4.95% 0% 17%
* Withholding Tax: Rates may be reduced under DTAs
VietnamVietnam’s Key Tax Rates
CIT† VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.25% 10% 0% 5% 10% 5% 35%
* Withholding Tax: Rates may be reduced under DTAs† CIT: To be reduced to 22% in 2014, and then further to 20% in 2016
CambodiaCambodia’s Key Tax Rates
CIT VATWithholding Tax Individuals
Div. Int. Roy. Min. Max.20% 10% 14% 14% 14% 20% 20%
* Cambodia currently has no DTAs in place
IndiaIndia’s Key Tax Rates
CIT† VATWithholding Tax* Individuals
Div.§ Int. Roy. Min. Max.30%/40% 12.5% 0% 5%-20% 10% 0% 33%
* Withholding Tax: Rates may be reduced under DTAs† CIT: Domestic companies taxed at 30%, foreign companies at 40%§ Dividends: There is a 15% dividend distribution tax paid by the company
SingaporeSingapore’s Key Tax Rates
CIT GSTWithholding Tax* Individuals
Div. Int. Roy. Min. Max.17% 7% 0% 15% 10% 0% 20%
* Withholding Tax: Rates may be reduced under DTAs
PhilippinesPhilippines’ Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.30% 0/7%/12% 15%/30% 20% 30% 5% 32%
* Withholding Tax: Rates may be reduced under DTAs
ThailandThailand’s Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.20% 7% 10% 15% 15% 5% 37%
* Withholding Tax: Rates may be reduced under DTAs
LaosLaos’ Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.28% 10% 10% 10% 5% 0% 28%
* Withholding Tax: Rates may be reduced under DTAs
BruneiBrunei’s Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.21% 0% 0% 15% 10% 0% 0%
* Withholding Tax: Rates may be reduced under DTAs
IndonesiaIndonesia’s Key Tax Rates
CIT VATWithholding Tax* Individuals
Div. Int. Roy. Min. Max.25% 10% 20% 20% 20% 5% 30%
* Withholding Tax: Rates may be reduced under DTAs
MalaysiaMalaysia’s Key Tax Rates
CIT GSTWithholding Tax* Individuals
Div. Int. Roy. Min. Max.25% 5%/10% 0% 15% 10% 0% 26%
* Withholding Tax: Rates may be reduced under DTAs
GlossaryCIT = Corporate income tax
VAT = Value-added tax
GST = Goods and services tax
China India
Hong Kong Singapore
Indonesia Philippines Thailand
Laos
Malaysia Brunei Vietnam Myanmar
DTAs in Asia*
* Note: These maps should serve as general reference only. For advice concerning a particular DTA within Asia, please email [email protected]
8 - ASIA BRIEFING | July and August 2013
Anti-Avoidance Rules Across Asia
– By Rohan Maitra, Dezan Shira & Associates
The advent of general anti-avoidance rules (GAAR) is
a relatively recent phenomenon, and anti-avoidance
rules have been passed into law by several countries
in response to the increasing use of sophisticated legal
means to avoid taxes levied in certain jurisdictions.
Common legal means to avoid taxation in different countries can
include the following:
• The establishment of a company or subsidiary in an offshore
jurisdiction;
• The use of a “tax haven” – a region where the rate of taxation is
officially extremely low or nonexistent;
• Exploitation of vague legal definitions – for example, the difference
between “business” and “personal” expenditures; or
• Investments known as “tax shelters,” which are exempt from certain
taxes such as home ownership, individual retirement accounts
and pension plans.
In response to these methods, governments around the world
have worked to reduce the practice of tax avoidance through
a combination of restrictions on certain investments and
strengthening enforcement measures against the shifting of profits.
GAAR is one of many tools that governments use in this regard.
Basically, anti-avoidance rules give the relevant tax authorities the
right to withhold certain tax benefits from transactions, or to deny
these benefits altogether if it is clear that the entities involved are
only attempting to obtain a reduction in taxes. This is called the
“substance over form” principle, in which the issue is not simply the
legality of the use of tax avoidance, but rather to determine whether
the sole reason for the procedure is to avoid paying taxes, and it
has become a crucial part of GAAR legislation in many countries.
Anti-Avoidance Rules in ChinaThe PRC’s initial foray into anti-avoidance rules emerged with the
release of Circular 2 in 2008, which introduced China’s Corporate
Income Tax (CIT) Law. In addition to implementing the new tax
system, the new law also included China’s first incarnation of anti-
abuse provisions, directly aimed at tax reduction and avoidance. For
situations in which an enterprise’s taxable income is reduced due to
its implementation of “arrangements that do not have a reasonable
business objective,” the governing tax authorities reserve the right to
make adjustments as they see fit. Despite the language being fairly
broad, the law’s main purpose is to correct the reduction, avoidance
or deferred payment of taxes.
Additionally, if there exists a reasonable basis for belief that a
company is misusing or abusing the tax-preferential policies China
offers, then the Chinese tax authorities are entitled to launch an
investigation into the possible abuse. The guiding principle of
this investigation will be the aforementioned “substance over
form” principle. China’s tax system also includes some measures
specifically aimed at reducing transfer pricing errors, potential
revenue reduction from wholly foreign-owned companies, and
other forms of tax reduction.
Anti-Avoidance Rules in IndiaIndia is one of the most active governments in the developing world
in dealing with tax avoidance. The country recently extended its
consideration of GAAR-related issues in 2012 with the advent of the
Finance Act. In addition to giving the tax authorities new powers
of oversight, India also chose to directly address the concept of tax
avoidance in the law. The aforementioned principle of “substance
over form” is critical to cases of tax avoidance in India, and the
issue whether or not the avoidance or reduction of taxes is the
main objective of the commercial transaction is likely to play an
increasingly important role in future cases. Originally, the new law
was to take effect on April 1, 2012. After careful consideration of the
difficulty of implementing the new rules, however, Indian authorities
chose to delay the implementation of the anti-avoidance measures
to April 1, 2016, giving the tax authorities and enterprises an
additional four years to prepare for its potentially far-reaching effects.
Under the Act’s provisions, transfer pricing regulations have
also been widened to apply to domestic transactions as well as
international transactions, which has resulted in higher barriers for
tax avoidance. Further, these new regulations have called a number
of previous Supreme Court decisions into question, including a
prominent case involving telecommunications titan Vodafone.
Indian tax and judicial authorities are currently in the process of
reviewing previously-closed cases to see if the regulations merit
reconsideration of the decisions. If the cases are reopened and
the decisions are changed, these companies and others may face
retrospectively-applied taxes.
Initially, many investors in India believed that the introduction
July and August 2013 | ASIA BRIEFING - 9
Anti-Avoidance Rules Across Asia
of the new GAAR rules would directly impact those using the
“Mauritius route.” Mauritius is one of India’s largest providers of
foreign investment – accounting for around 40 percent of India’s FDI
inflows - and many different press outlets in India have theorized that
investors who invest in India through Mauritius have been taking
advantage of India’s double tax treaty with the country to reduce
their capital gains taxes.
Under the current circumstances, however, these investments will
not be impacted until 2016, when the GAAR is actually implemented.
The regulations do, however, include new Mauritius-specific anti-
avoidance provisions - entities looking to invest in India from that
location will likely have to provide stronger proof of investment
in Mauritius, and the burden of “substance over form” proof will
likely be strengthened as well. Furthermore, Indian governmental
authorities are actually considering updating their double tax treaty
with Mauritius, which may result in an additional batch of regulations
on investments from the country.
Anti-Avoidance Rules in ASEANAlthough there are as of yet no generalized anti-avoidance rules in
the ASEAN Economic Community (AEC), several ASEAN countries
have nonetheless adopted – or are in the process of adopting - anti-
avoidance statutes within their own jurisdictions and are gradually
changing their tax laws to conform to global anti-avoidance
standards. Thailand, for instance, has no official GAAR, but anti-
avoidance measures still exist (which include more thorough audits
of companies that are suspected of tax avoidance and other abuses).
Anti-avoidance is also likely to be a very important topic as the AEC
continues finalizing its regulations and legal requirements. When
the ASEAN-specific regulations take full effect in 2015, many of the
countries involved will see a reduction in their corporate tax rates,
and the anti-avoidance measures can play an important role in
bolstering revenue streams to the countries.
MalaysiaIn dealing with transactions, Malaysia has implemented many anti-
avoidance rules in response to tax avoidance. Malaysia’s rules allow
its tax authorities to deny or disregard certain transactions on the
basis of their being undertaken solely for tax benefits, or to deny the
benefits to the transactions. Additionally, Malaysia has implemented
provisions aimed at shareholder continuity, living accommodations,
and time periods of transactions.
MyanmarAlthough Myanmar has no formalized GAAR as of 2013, its high
number of DTAs with other countries has forced it to adopt a
stronger stance on this issue than have most of ASEAN’s member
states. Under Myanmar’s Income Tax Law, tax authorities have the
right to assess and reassess whether a tax payer has fraudulently
tried to avoid paying required taxes. Additionally, although no
laws against thin capitalization exist, there are certain limits on the
deductibility of interest that help to guard against this strategy.
SingaporeAs one of the world’s most open and fastest–growing economies,
Singapore has had to deal with anti-avoidance in many different
situations over the years. Singapore’s current system of anti-abuse
regulations allows its tax authorities (IRAS) to disregard transactions
or benefits if the sole intent in the transaction is to alter the paying
party’s tax rate. If the transaction is found to be carried out for
genuine commercial reasons, however, then all applicable benefits
are provided. Singapore also has regulations regarding transfer
pricing regulations that generally focus on the “arm’s length”
principle, which states that the price paid in any transaction between
two related parties must be equal to the price the purchasing party
would pay were no relationship to exist.
Expanding Your China Business To India & Vietnam
Our guide to help you evolve your China business into an Asia business.
Understanding Permanent Establishments In China
An examination of PE status in China and the t r igger points to look out for.
India’s Taxes For Foreign Invested Entities
Our guide to the applicable taxes when establishing a business in India.
Related Reading From the Asia Briefing Bookstore
March and April 2013 | ASIA BRIEFING - 1
Issue 2 • March and April 2013
From Dezan Shira & Associates
Expanding Your China Business to India and Vietnam • The Emergence of Vietnam and India as China Alternatives• Setting Up a Foreign-Invested Enterprise in Vietnam• Setting Up a Foreign-Invested Enterprise in India• Hong Kong or Singapore for Holding Asian Investments?
Scan this QR code with your smartphone to visit:
www.asiabriefi ng.com
Available in multiple languages
Are You Ready For ASEAN 2015?
An examination of the complete free trade agreements ASEAN has in place, and that are about to be adopted.
The 2013 Asia Tax Guide
Al l the re levant b u s i n e s s a n d individual tax rates across all countries in Asia.
Vietnam’s Provinces, Regions and Key Economic Zones
T h i s i s s u e identifies the most competitive regions and development zones in Vietnam.
The China Tax Guide(Sixth Edition)
A complete, in-depth overview of all the taxes foreign investors in China need to be aware of.
An Introduction To Development Zones Across Asia
A breakdown of var ious types of d e v e l o p m e n t zo n e s av a i l a b l e throughout Asia.ARE YOU
READY FOR ASEAN 2015?Free trade agreements and economic partnerships are dramatically changing Asia’s business opportunities
Scan this QR code with your smartphone to visit:
www.asiabriefi ng.com
Inside This Issue:
Why ASEAN isImportant for Your Asia Business StrategyThe term “ASEAN” is cropping up more often these days, yet st i l l many businesses globally remain unaware of its impending impact on trade and the supply chain.
Inter-Asia Trade FlowsWe outline the fastest growing China trade corridors.
Using Singapore as a Base for Asia ExpansionAs a fi nancial and services hub, Singapore is the new corporate base for Asia.
Vietnam as a Manufacturing Destination for Sales to ChinaAs China labor becomes more expensive, Vietnam’s factories are poised to fi ll the cost gap.
Issue 1 • January and February 2013
From Dezan Shira & Associates
3
9
7
6
Scan this QR code with your smartphone to visit:
www.india-briefi ng.com/news
3
7
9
Issue 18 • January 2013
From Dezan Shira & Associates
India’s Taxes for Foreign-investedEntities
Inside This Issue:
An Overview of India’s Taxes on BusinessIn this article, we give a brief overview of India’s major taxes and duties on business, as well as double taxation avoidance agreements.
Individual Income Tax Rates and DeductionsIndividual income tax (IIT ) payments are determined by income source, residency, amount, and other factors
India’s Tax Reforms in 2013The Indian Government has tabled a measure of reforms to be introduced to create a more favorable environment for foreign investment.
May and June 2013 | ASIA BRIEFING - 1
Scan this QR code with your smartphone to visit:
www.asiabriefi ng.com
Available in multiple languages
Scan this QR code with your smartphone to visit:
www.asiabriefi ng.com
Available in multiple languages
Issue 3 • May and June 2013
From Dezan Shira & Associates
An Introduction toDevelopment ZonesAcross Asia • Understanding Development Zones in Asia• Development Zones in China• Development Zones in India • Development Zones in Vietnam• ASEAN Development Zone Round Up
An Introduction toDevelopment ZonesAcross Asia • Understanding Development Zones in Asia• Development Zones in China• Development Zones in India • Development Zones in Vietnam• ASEAN Development Zone Round Up May 2013 | CHINA BRIEFING - 1
Understanding Permanent Establishments in China• Triggering Permanent Establishment Status• Tax Implications of a Service Permanent Establishment• Does a Representative Offi ce Constitute a Permanent Establishment?• Countries with Double Taxation Avoidance Agreements with China
Issue 134 • May 2013
From Dezan Shira & Associates
Scan this QR code with your smartphone to visit:
www.china-briefi ng.com
Understanding Permanent Establishments in China• Triggering Permanent Establishment Status• Tax Implications of a Service Permanent Establishment• Does a Representative Offi ce Constitute a Permanent Establishment?• Countries with Double Taxation Avoidance Agreements with China
2013
THE 2013 ASIA TAX GUIDE
Bangladesh • Brunei • Cambodia • China • Hong Kong • India • Indonesia
Japan • Laos • Malaysia • Mongolia • Myanmar • Nepal • Philippines
Singapore • South Korea • Sri Lanka • Thailand • Vietnam
presents
Regional Business Intelligence from Dezan Shira & Associates
Regional Business Intelligence from Dezan Shira & Associates
2013
Produced in association with
The China Tax Guide:Tax, Accounting and Audit(Sixth Edition)
I. China’s Tax System
II. China’s Business Taxes
III. Individual Income Tax
IV. Accounting, Audit and Compliance
V. International Taxation
www.asiabriefing.com/store
1Vietnam Briefing | 2012
VIETNAM BRIEFINGThe Practical Application of Vietnam Business
From Dezan Shira & Associates
Issue 11 • May 2012
Vietnam’s Provinces, Regions and Key Economic Zones
INCLUDING• A Look at the 2012 Vietnam Provincial Competitiveness Index• An Update on Vietnam’s Three Key Economic Zones• Comparison of Vietnam’s Eight GSO-Defined Regions
Scan this QR code with your smartphone to visit: www.vietnam-briefing.com/news
NewWebsite
ASIA BRIEFING
10 - ASIA BRIEFING | July and August 2013
Bilateral Investment Treaties– By Chris Devonshire-Ellis, Dezan Shira & Associates
Bilateral investment treaties (BITs) are an oft-ignored part
of bilateral trade, commerce and investment between
two countries, and have often been superseded by
other, more detailed trade agreements such as DTAs.
Nonetheless, for many countries, BIT agreements
remain the only basis through which they can mutually and legally
recognize the protocols and parameters of bilateral investments,
and particularly so in the case of many lesser developed countries
in Asia, Africa, the Middle East and Latin America, For such countries,
BITs may be the only form of agreement in place with major trading
powers such as China, India and even the United States.
The purpose of a BIT between two countries is reciprocal
encouragement, promotion and protection of investments in each
other’s territories by companies based in either country. These
treaties typically cover the following areas:
• Scope and definition of investment;
• Admission and establishment;
• National treatment;
• Most-favored-nation treatment;
• Fair and equitable treatment;
• Compensation in the event of expropriation or damage to the
investment;
• Guarantees of free transfers of funds; and
• Dispute settlement mechanisms, both state-state and investor-
state.
To illustrate the wide use of BITs, we list below the details of the
agreements held by China and India as examples of how widespread
their use actually is:
China’s Bilateral Investment Treaties China has been entering into BITs with other countries since the
early 1980s, when the nation began its path to reforms under then
Premier Deng Xiaoping. Although many have now been superseded
by more complicated and sophisticated trade agreements such
as DTAs and other bilateral mechanisms, many smaller emerging
nations only have such bilateral trade treaties with China.
China has over 80 BITs in place, and continues to use them in its
bilateral relationships. So while the China-Switzerland BIT was
ratified back in 1987, others still continue to be put into position,
such as the recent BIT agreement between China and Canada that
was negotiated at the Vladivostock APEC summit last year.
China’s BIT Agreements include:
Africa - Botswana, Cameroon, Cote D’Ivorie, Djibouti, Ethiopia, Egypt,
Ghana, Madagascar, Morocco, Tunisia and Uganda
Americas - Argentina, Benin, Bolivia, Canada, Chile, Colombia, Cuba,
Ecuador, Guyana, Jamaica, Mexico, Peru, Trinidad & Tobago and
Uruguay
Asia & Oceania - Australia, Brunei, Cambodia, Indonesia, Japan, Laos,
Mongolia, New Zealand, Philippines, Singapore, Sri Lanka, Thailand,
North Korea, South Korea and Pakistan
Europe - Albania, Austria, Belgium-Luxembourg, Croatia, Czech
Republic, Denmark, Estonia, Finland, France, Georgia, Germany,
Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Netherlands,
Norway, Portugal, Romania, Russia, Slovenia, Spain, Sweden,
Switzerland, Turkey and the United Kingdom
Middle East - Bahrain, Iran, Jordan, Lebanon, Kuwait, Syria, Qatar
and UAE
India’s Bilateral Investment Treaties India has also been entering into BITs with other countries for the
past three decades, many of these with either its historical trading
partners in Europe or with countries with a large Indian Diaspora.
India has nearly 40 BITs in place, and continues to use them in its
bilateral relationships. For example, while the BIT signed between
India and Germany was ratified back in 1995, others still continue
to be put into position. The recent BIT agreement between India
and Nepal was negotiated as recently as 2011.
India’s BIT agreements include:
Africa - Egypt, Ghana, Mauritius, Morocco and Mozambique
Americas - Mexico, Argentina and Colombia
Asia & Oceania - Australia, Indonesia, Kazakhstan, Nepal, South Korea,
Sri Lanka and Thailand
Europe - Austria, Belgium-Luxembourg, Bosnia, Croatia, Czech
Republic, Denmark, France, Germany, Greece, Hungary, Italy,
Netherlands, Portugal, Slovenia, Spain, Sweden, Switzerland, Turkey
and the United Kingdom
Middle East - Oman
Asia’s various BIT, DTA and FTA agreements can be downloaded
in their entirety from the ASEAN Briefing website. To access these
documents, simply visit www.aseanbriefing.com and click on the
“Tax Treaties” section.
July and August 2013 | ASIA BRIEFING - 11
China - China has a comprehensive series of tax treaties
both multilaterally with ASEAN and bilaterally with most of the
trade bloc’s member states. Through its free trade agreements
in particular, import-export duties are being abolished on
thousands of products and, as a result, China will likely begin to
lose part of its production capacity to low-cost ASEAN members
such as Vietnam that will import products duty free into China.
However, it also frees up ASEAN markets across Southeast
Asia for Chinese products – creating a boom for both Chinese
and ASEAN manufacturers and sourcing companies. It also
enhances China’s ability to trade with India through an ASEAN
intermediary company.
Singapore - Singapore has been positioning itself as a
massive service center for intra-Asian trade. Setting up a foreign
subsidiary here (and thus qualifying for the ASEAN benefits
via a Singapore subsidiary) is easy and inexpensive. Add to
that superb logistics, port and warehousing infrastructure, a
world class banking system, and complete free trade means
the country’s position as a regional trade hub is unrivalled.
Understanding the benefits that Singapore’s extensive collection
of DTAs can bring to international trade throughout the region
should be a priority item for any international business looking
to trade in or with Asia.
Further ResourcesTax Treaty Developments Across Asia
India - Like China, India also has substantial FTAs and DTAs
with ASEAN and its members states. This means that Indian
companies looking to set up a subsidiary in an ASEAN nation
can take advantage of not just the ASEAN FTA with India, but
crucially also the ASEAN agreement with China (and vice versa
for Chinese companies). As such, Indian-Chinese bilateral trade
through the use of ASEAN subsidiaries and relevant tax treaties
looks to dramatically increase in the coming years. Much of that
will pass through ASEAN service offices set up by companies
from both countries, taking advantage of their respective ASEAN
DTAs, while using countries such as Singapore as a trading base.
Vietnam - As a member of ASEAN, Vietnam is committed
to many tax treaties, and is active in adding its own. In addition
to China, Vietnam also offers free trade to all ASEAN nations,
and is part of free trade agreements between ASEAN and other
countries. Vietnam is currently negotiating bilateral deals with
key partners such as European Union (EU), the United States,
Canada and will be part of the Trans-Pacific Strategic Economic
Partnership Agreement. Meanwhile, the abolition of import
duties on thousands of products under the terms of the ASEAN-
China FTA will push Vietnam, and its lower operating costs, as a
secondary manufacturing supplier to China.
Treaties between ASEAN, its members countries and all other nations can be obtained from the ASEAN Briefing website at
www.aseanbriefing.com. If you are interested is setting up a business anywhere in China, India, Hong Kong, Singapore, Vietnam or any
other Asian country, please contact Dezan Shira & Associates for assistance: [email protected].
China: [email protected] | Dalian | Guangzhou | Hangzhou | Ningbo | Qingdao | Shanghai | Shenzhen | Suzhou | Tianjin | Zhongshan
Hong Kong: [email protected]
India: [email protected] | Mumbai
Vietnam: [email protected] | Ho Chi Minh City
Singapore: [email protected]
Foreign Investment, Legal, Tax and Operational Advice across Asia
Corporate Establishment | Due Diligence | Business Advisory | Tax Planning | Accounting | Payroll | Audit and Compliance
Email us at [email protected] or visit our regional offices by contacting:
Asia: The New Driving Power of the Global Economic Engine
Asia: The New Driving Power of the Global Economic Engine
www.dezshira.com
Hong [email protected]
